Taiwan Gambles with US Allies on China’s AIIB

Taiwan submitted a last-minute letter of intent to apply for the Asia Infrastructure Investment Bank (AIIB) before the March 31 deadline to become one of the founding members. This move immediately sparked protestors in Taiwan demonstrating outside the Presidential Office that evening, especially as the public learned that the Ma Administration contacted China through the Mainland Affairs Council and deliberately left out the Minister of Finance Chang Sheng-ford (張盛和)’s full title, as well as the official name of Taiwan (Republic of China) on the cover letter.

The Mainland Affairs Council explained that they removed the ministry’s emblem after having discussion with China’s Taiwan Affairs Office (TAO), claiming it would increase Taiwan’s stake to be successfully accepted. On April 1, the AIIB’s interim secretariat stated that they have received Taiwan’s application after TAO passed it to the institution. TAO spokesman Ma Xiaoguang rebutted the speculation of Taiwan being unwelcomed to join, saying “The AIIB is open and inclusive, and welcomes Taiwan to participate in the AIIB under an appropriate name.”

The issue soon sparked intense controversy regarding Taiwan’s attempt to participate in an international financial institution headed by China. Protesters attacked the Ma Administration both on the absence of public discussion and evaluation regarding the decision, as well as going through the TAO instead of the ministries of foreign affairs, indicating that Taiwan was somehow acquiescing to being a part of China.

However, on top of the question over sovereignty and public involvement in government decisions, Taiwan faces another set of questions that are more global in nature. Namely, how will Taiwan’s decision affect the economic plans of the US and China? While the US had strongly cautioned the world not to join the China-led multilateral effort, many states, including long-time US allies, saw benefits in joining that outweighed the risks.

One neighbor to Taiwan’s north, South Korea, has confirmed to join as a founding member. South Korea’s communications, transport, construction and energy sectors are expecting increased access to infrastructure projects. Meanwhile, as Seoul is pursuing a delicate “China for the economy, US for defense” strategy, joining the AIIB have tested the security alliance with the US, which Seoul relies on to prevent aggression from North Korea. However, Korean officials stated carefully that the decision to join AIIB did include a year-long dialogue with the US. South Korea is also in the process of concluding a free trade agreement with China.

To the south, Australia also joined in hopes of competing in future development projects. At the same time, Australia called for adequate transparent governance in the AIIB. After the Australian Treasurer Joe Hockey said public that he was disappointed the US Congress blocked a plan to allow more emerging economies to join the International Monetary Fund, the AIIB could represent another route for Australia to access these developing markets.

But most shocking was UK’s decision the join early in the process. The UK faced heavy criticism from Washington, claiming that the UK had “virtually no consultation with the US.” The official responses from London explained that the engagement would help ensure the AIIB’s standards of good governance. On the other hand, some commentators see this as a strategic move to boost China-Britain economic ties. The British move was followed by a domino effect of other EU countries joining: Germany, France, Luxembourg, Switzerland, Denmark, and Austria.

Japan, standing alone, acted calmly while many nations hurried to join the organization before the March deadline. Japan said it will make the decision in late June, citing caution over the governance standards and screening processes for providing loans. Opposition in Japan suggested that Japan could focus on enhancing existing institutions such as the Asian Development Bank instead. But facing an aging demography, business lobbies stressed that shrinking domestic consumption would need stronger export policies.

For the first time in recent memory, strong US allies made calculated moves to bet on the side of China’s proposed alternative. For these governments, the question was how to balance possible economic windfalls against diplomatic turbulence with the US.

For Taiwan, of course, the complexities are much deeper than it might be for other countries in making this decision. While arguments surrounding Taiwan’s sovereignty dominate the discourse domestically, its diplomatic decisions will increasingly have a globally interconnected effect as well. Taiwan’s circumstance is once again caught in the paradox between its historical deadlocks, and ever more multilateral chess games. The issues raised by the AIIB debacle will stay with Taiwan for a long time to come.

(Feature of protests in front of the Presidential Office in Taiwan, by Mei-Yu Liu)

A well informed citizenry is the foundation of our modern society. Every week, our news team brings you the most important stories on current affairs, diplomacy, business and human rights, in Asia and around the globe. Not only can we be well informed, but better informed, about the relationship between our lives, our communities, and the common world.